Stock Market Chart Looks Just Like 1929 Before The Crash

What’s the old saying, those who don’t learn from history are doomed to repeat it? Well take a look at this chart and read what Mark Hulbert has to say about it at MarketWatch; do you think it’s going to be 1929 all over again?

Chart from MarketWatch

There are eerie parallels between the stock market’s recent behavior and how it behaved right before the 1929 crash.

That at least is the conclusion reached by a frightening chart that has been making the rounds on Wall Street. The chart superimposes the market’s recent performance on top of a plot of its gyrations in 1928 and 1929.

The picture isn’t pretty. And it’s not as easy as you might think to wriggle out from underneath the bearish significance of this chart.

I should know, because I quoted a number of this chart’s skeptics in a column I wrote in early December. Yet the market over the last two months has continued to more or less closely follow the 1928-29 pattern outlined in that two-months-ago chart. If this correlation continues, the market faces a particularly rough period later this month and in early March. (See chart, courtesy of Tom McClellan of the McClellan Market Report; he in turn gives credit to Tom DeMark, a noted technical analyst who is the founder and CEO of DeMark Analytics.)

One of the biggest objections I heard two months ago was that the chart is a shameless exercise in after-the-fact retrofitting of the recent data to some past price pattern. But that objection has lost much of its force. The chart was first publicized in late November of last year, and the correlation since then certainly appears to be just as close as it was before.

To be sure, as McClellan acknowledged: “Every pattern analog I have ever studied breaks correlation eventually, and often at the point when I am most counting on it to continue working. So there is no guarantee that the market has to continue following through with every step of the 1929 pattern. But between now and May 2014, there is plenty of reason for caution.”

Tom Demark added in interview that he first drew parallels with the 1928-1929 period well before last November. “Originally, I drew it for entertainment purposes only,” he said—but no longer: “Now it’s evolved into something more serious.”…

I’m very interested in the stockmarket. I find that chart analysis requires much more than just price pattern matching. I would caution everyone reading this to wonder why there are no indicators facilitating the analysis.

There are no averages, no MACD or other momentum indicators, and no volumes on that chart. Nothing more than price histories that more or less look the same. To draw conclusions based on two price histories that move about at the same angle is hasty to say the least.

I’m not saying that western economies are out of the woods from the 2008 debacle. I’m not even saying that there can’t be a 1930 style depression at this time. What I am saying is that the chart presented means nothing. I’ll say it againg, correlation is not causation, and I’m not even sure we have correlation as we don’t even have a probable cause. All we have is pattern matching…

Daniel John Grady

Besides, the chart doesn’t point out that the stocks that have drawn down the market until Feb 14 were the ones that had achieved record highs before year end. In other words, the move was profit taking after earnings season, most likely.

Not to mention the little bit of turmoil because of the Taper -which is a good thing.

Liam_McGonagle

“However, what is important, McClellan said, is that the time scales of the two data series need to be the same. And, he stresses, there has been no stretching of the time dimension to make them fit.”

Precisely my first question. I love it when articles actually address the salient point.
Good news for people who like bad news, I guess.

kowalityjesus

How can a market with so much automation mimic a timescale from 80 years ago? That doesn’t seem possible.

Andrew

The stock market is an example of determinism and not free will.

Liam_McGonagle

Especially WITH automation.

The whole point behind algorithmic trading is to appeal exaggerate our entirely predictable tendency to poor judgment thus drive prices to ridiculous price/earnings ratios. If stocks were actually priced at a sustainable yield it’d be a radically less sexy business.

kowalityjesus

I agree the stock market is unpredictable and a function of collective stimulus-response. But I think it is inconsequential to the idea that a system with vastly different input/response time should be different on some time scale. If people were using ticker tape like the 20s instead of etrade, there is NO WAY that the market response would look exactly the same, they would be greatly accelerated, or at least totally different owing to the butterfly effect.

Gjallarbru

The chart doesn’t point to the cause is the similarity. There is no cause mentionned at all. There lies the problem with the article, not even a small attempt to explain the situation. Just a big “look over here”, cretinous call for attention. This is alarmist at best, no matter how “different” markets were different between then and now.

Liam_McGonagle

Fair point.

But get real. That is pretty goddamn freaky. Even if they can’t conclusively prove sh*t, I’m glad they shared this with us.

Gjallarbru

Ha ha, they shared this? Isn’t it obvious that none of world economy has recuperated from the 2008 crash? It would be no wonder that we are actually heading for another crash, with or without a cute chart.

Will there be crash? Of course, that is the way the system is built. Will there be a crash necessarely now, because charts look alike? No, not at all.

If there is a crash, it is because the middle class is being crushed and means of production are exported where costs are low.

American Cannibal

Wrong. There will be a crash, and soon, because the game needs to be reset in order to make more $$$. The boom-bust cycle of the market has little to to with the greater economy. When the richest 1% start moving into CASH, that is a big indicator a CRASH is a-coming, set off by the biggest market traders. Mmmhmmm… look to the flocks 4 guidance. Large cash reserves are a indicator – they are readying for a correction or bottom to BUY LOW. The middle class gets crushed either way. That’s why we call them ‘middle’.

Gjallarbru

Wrong? You should be more subtle…

Is your point correct, yes and no. The “rich” as you call them, do not represent the greatest amount of funds on the market. Institutions are the greatest amount of funds on the market. Hedge funds, banks, and alike are those that hold most of the market, and substantial portions of their monies comes from the middle class. As individuals, the “rich” are barely more significant than the middle class.

Where the middle class situation is important is that perceived value of stocks is often based of projections of sales and consumer interest. When the middle class retreats as consumers, the market eventually follows.

Where you are right is that the rich are wiser about such matters. They will start to exit first, and give the first downward momentum. Their retreat will trigger reactionary sells, and a chain reaction is started. Still, they are not the immediate cause in the eventual market’s crash.

So sell short at that time, and you should do well. Oh and “soon”, is a relative term. Lastly, I never said there wouldn’t be a crash, I just said it wouldn’t be because of chart.

American Cannibal

“Where the middle class situation is important is that perceived value of stocks is often based of projections of sales and consumer interest. When the middle class retreats as consumers, the market eventually follows.”

The consumer has been in retreat for years, yet the market has been on a 5-year bull run.

“Where you are right is that the rich are wiser about such matters.”

I know. We are wiser about such things. So just trust me when I say, “Wrong.” The retail and institutional investor is too slow to make the market move, my friend. They play follow the leader every time. That’s how we keep making $$$$$$$$.

Gjallarbru

With difference, no I don’t trust you, I don’t know who you are, nor you know I.

Sorry–my point was that the stock market is (broadly speaking) VERY PREDICTIBLE.

It’s subject to exactly the same sort of unrealistic, fantasy-prone bias it ever was.

Somehow we’ve got different DNA than our grandparents did? Not likely. Far from learning from their example, we do everything in our power to emulate it.

kowalityjesus

Why would you say that the market is “very predictable?” Are you a billionaire?

Yes I agree, its subject to the same humans, but with different function capablities, which would at least squeeze the timescale or more likely just make the input coordinates slightly different and therefore quickly irrelevant via chaos theory.

Gjallarbru

Very predictable? Really? You musn’t have traded much on the markets. I don’t dispute there is some predictability, but the word “very” has no place. Just like humans are predictable, until they aren’t.

American Cannibal

The market IS predictable. I know. I’ve made TONS of money off it.

Gjallarbru

Sure, I believe you…

American Cannibal

Ha! Where do you think the money comes from that lets me comment online all day long? HMMM!?!??!?!

Gjallarbru

From the job you keep slacking off from…

American Cannibal

Ha, ha! What job.

Liam_McGonagle

But to be fair, sir, you are a large multinational banking behemoth with a staff of tens of thousands of quants milking the system through taxpayer subsidized capital and enormous supercomputerized automated trades.

And me at home struggling to make do with my single Cray.

American Cannibal

Well, duh. I’m a yob creator!

Rhoid Rager

i disagree. I believe the stock market to be a reflection of the free will of the rich few. That’s how the ponzi scheme works usually. The ones at the top of the pyramid know when to get out. But the difference with the stock market and the broader economy is that the supply of the medium of exchange is controlled by those at the top, unlike that of a regular sub-system ponzi scheme. This makes the behaviour different, which is why the money masters try to hide their fraud through the manufactured cycles of expansion and contraction. But peak oil is making these cycles irrelevant now. A decline in energy disallows the fraud-masking behaviour of the business cycle, because it will send us into a permanent contraction.

Johnny Utah

Well in this scenario, the crash puts the Dow at above 13000. Is that good? Bad? For the companies that are actually making money it seems like its a bad thing. We are still all fucked here at the bottom anyway.

emperorreagan

Sweet. The market can crash just in time for oligarchs to cement some more of the gains they’ve made thanks to the advent of 401Ks while forcing more people to delay retirement!

https://twitter.com/anti_euclidean ÿ

Well, they did kind of badly miscalculate that most of the population would die before reaching “retirement” age…

Liam_McGonagle

When the music stops, some people will be asking some uncomfortable questions, like: “Who has all the M2 that we exchanged for all this worthless M3?”

Of course, the answer will be obvious: the banks.

They’re the ones underwriting all these equity deals and trenched debt issues.

American Cannibal

classic. ‘spanks 4 the memories…

Eztrenk

Wasn’t the reason for the great depression a newspaper article where an economist claimed a certain bank couldn’t pay back all the money of the people keeping it there if they asked, following which the people promptly did just that, leading to a chain of events which set everything off?

Could be wrong, but I’m sure I heard that about something.

Gjallarbru

Mentioned in the zeitgeist movie, about JP Morgan. Haven’t verified the facts, but that is where I heard it.

hamvvar

That was ‘It’s a Wonderful Life’

BuzzCoastin

research has shown that humans are not better than monkeys
when it comes to managing money
(Kahneman, Santos et al)

Kahneman, Nobel Prize in economics
asserts in his book, Thinking Fast & Slow
that when humans to manage wall street money
monkeys with dart boards
are actually better
& that humans are completely unaware
of the limitations of the human mind
involving money

want to know if this chart portends the future
ask a monkey

InfvoCuernos

What kind of madman give a monkey a dart? I hope that’s on youtube, I’d watch it.

BuzzCoastin

the very same madman
who gave humans money

Rhoid Rager

exactly. there’s no predictable science behind the markets, because _we_ are the markets.

InfvoCuernos

… so sell all your stock now and git while the gittin is good! That should guarantee exactly the crash that is being predicted. Next we’ll all be running on the banks. Spend that green shit now, tomorrow is too late.

American Cannibal

I’d recommend the good old Sell High, But Low strategy. The market IS rigged, so why not let it work in one’s favor?

A market crash is A GOOD THING. A market rally is a GOOD THING. Ride the waves up and down, like the Big Boys.

lifobryan

Uh oh … its scarier than you think!

AManCalledDa-da

Who cares? Most of us already lost all our money and jobs. Welcome to the party.

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